Our thoughts on FCA final report into add-on insurance products

Background

·         To recap – the FCA’s provisional findings to its Market Study of add-on insurance were published in March.  The FCA concluded that competition in add-on markets is not effective and that markets were not broadly working for consumers, with add-ons products offering poor value for money.

·         The Provisional findings provoked 65 responses from the insurance industry and consumers which focused mainly on the proposed remedies.

What did respondents say?

• Some respondents felt the “waterbed” effect where core premiums are reduced when add-ons are purchased should be considered in more depth.
• Generally respondents considered that the FCA had failed to take into account differences between products in forming their conclusions and that remedies assumed “one size fits all”.
• The FCA’s Proposal to ban opt out selling and to improve the way in which add-ons  are sold on price comparison websites received broad support – which is echoed by ARAG.
• Feedback opposed FCA analysis of firm data centred on the use of value as an indicator of whether markets were competitive i.e. the “Sun light" remedy which proposes publishing the claims ratio.
• Respondents felt for a number of reasons that the claim ratio was not a good indicator of value or profitability. They challenged the detail of the FCA’s calculations and identified practical difficulties associated with implementation of this remedy; although the remedy was supported by one consumer group.
• Respondents challenged the FCA’s conclusions about GAP insurance and focused on the negative effect the deferred opt-in method of sale proposed by the FCA might have on the GAP market.

Key messages from The FCA

The final report does not provide information about the FCA’s remedy work which is ongoing but focuses on the feedback received.

·         Overall the FCA has concluded that the feedback has not changed their overall conclusion that competition for add-ons is not effective.

·         The FCA reiterates that they recognise the value that some add-ons can provide (including the convenience they offer to consumers) and…

·         …that there are differences between the five products in the study and between different general insurance products more widely.

·         The FCA will apply cross-market remedies only where findings suggest that markets may

       be affected more widely.

·         The FCA recognises that remedies must be proportionate, and wider market impacts and unintended consequences must be considered in determining the design of measures to be implemented.

·         The feedback received on remedies made clear that there are no easy solutions to the problems the FCA is seeking to address. In particular the FCA acknowledges that with regard to the Sunlight remedy there are several complex issues to address before such a measure can be introduced.

Next steps

The FCA will

• work closely with industry and other stakeholders, including through a series of working groups which will be launched shortly,
• consult on proposed remedies later in the year. The timetable reflects the complexity of the issues at stake and the FCA’s desire to take on board the feedback received.

ARAG’s position

·         ARAG has no experience of GAP insurance and cannot comment on proposals to remedy defects the FCA has identified in the GAP insurance market.

•       We support a ban on selling add-ons by requiring customers to opt out of the purchase when they buy a core insurance product.
•       Our particular interest is in the “Sun light” remedy. We look forward to playing an active part in supporting the FCA to implement this remedy  so that it provides meaningful information to consumers and does not have unintended consequences.

We are concerned that unless the remedy can be refined consumers;

·         will be misled about the actual value of products since the FCA admits that no such measure currently  exists

·         will lose the convenience and protection of add-on insurance,

·         could be nudged towards expensive stand alone products (which will escape the requirement to disclose claims ratios ) and

·         will find that in the future added value features such as telephone legal advice and free digital legal documents, which are currently included within legal expenses policies but not reflected in the claims ratio, will be withdrawn.   

Lesley Attu

Product Development Manager

Trading times are tough …..

The Financial Times recently reported on the burden of late payment borne by small businesses http://on.ft.com/1sJMBMt. 

The article refers to data published by Bacs Payment Schemes, the direct debit company. BPS estimates the debt burden on SMEs is £39.4bn, up from £30bn in 2013 and higher than a previous peak of £37bn in 2012.

•  The research established that 60 % of SMEs are experiencing late payments, with the average company waiting for £38,186 in overdue payments.
• 72% of companies in the manufacturing sector were affected by overdue payments, followed by those in services (63%) and the transport, retail and distribution sector (48%).
• Businesses are incurring additional costs of £9.16bn a year because of late payments, with almost a third saying they were spending around £500 a month as a consequence of money owed to them. This figure could be as high as £10,000 a month as a result of the various costs associated with bad debts, including overdraft fees and administrative costs.
• One in four companies is spending more than 10 hours a week chasing late payments.
• The knock-on effect of late payments meant that a quarter of companies were being forced to pay their own suppliers late, with one in five saying late payments are forcing them to rely on bank overdrafts.

Mike Cherry, national policy chairman at the Federation of Small Businesses, said: “These latest figures are a further reminder of the major headache caused by late payments. Not paying on time and lengthy terms can have a seriously detrimental impact on small firms”.

…..ARAG can help 

• Our Essential Business Legal and Absolute Business Legal policies offer Contract and Debt Recovery as an optional cover.  Provided that there is a reasonable chance of obtaining and enforcing a judgment the policy pays legal costs and expenses up to £100,000 to pursue recovery. 
• Whether or not policyholders have Contract and Debt Recovery in force they can contact our 24/7 legal advice helpline for advice about their legal rights.
• The ARAG legal services website provides an on-line law directory and a range of on-line legal documents which registered users can create for free. www.araglegal.co.uk Policyholders who are new to the site can watch a two minute site video from the home page. They will need to enter their voucher code to register to create their own user ID and password. This is very simple and once it has been done policyholders can select documents from a menu and watch their document take shape as they build it on line by responding to on screen prompts. Guidance note accompany all documents. 
• A solicitor review service is available for some documents which are subject to a fee.

More about on-line legal documents

Policyholders can manage debt problems before they escalate by using our on-line legal documents. On-line documents can be created in minutes and stored securely on-line. 

      The debt recovery pack contains a suite of letters, or individual items can be selected, including;  

• Acknowledgement of a debt
• Guarantee for the payment of a debt (where the creditor has commenced legal proceedings against the debtor)
•  A reminder letter for an unpaid invoice
• Debt collection letters for unpaid invoices – an initial demand letter requiring payment for an overdue invoice, and a second letter to be used as letter before action if there is no response to the first letter.
• County court claim forms for debt recovery (Note – where debt recovery cover is operative policyholders can claim under their policy and we will take of this for them).
• Assignment of a debt.

Businesses can save significant additional costs and time as well as avoiding the knock on effects of late payments. If you sell Essential or Absolute Legal Solutions make sure your clients have their voucher code and get them to register straight away.

If you would like details of our commercial products please call us on 0117 3072278. 

Lesley Attu

Product Development Manager

Time flies by when you are having fun

I’ve already been here for two months and I must say that the time is flying by. Only three month left to get to know all other departments I haven’t worked for yet. The product development department is my “home” – where I spend the most of my time here because this is where I original come from in Germany “product development and innovation department” headed by Dr. Maslaton. But to know and understand the correlations of the UK insurance it is also important to learn more about the processes and structures of all the other main departments. Until now I worked for marketing and Claims Management Unit (CMU) both very interesting.

During my time here I have the chance to attend at two of your quarterly events. Fortunately one of them was the summer sports event on the Downs. Before this event took place I had no idea what to expect but know I can say it was a lot of fun with Ultimate Frisbee, Boule, Croquet and Giant Jenga.

Before somebody will ask – yes, we also played the games before starting to eat. Let’s have a look.

 

 

 

In Germany we only have one staff event a year but it is quite different. We aren’t as sporty as you, because of the size of the company it would be difficult to organize. The only activity we can do is dancing on the dance floor besides drinking and eating. But we have also a lot of fun and it’s always an amazing event, really good to get to know your colleagues offsite.